Pa. Lawmakers Have to Face Pension Pain Sooner or Later

By Eric Boehm | PA Independent

HARRISBURG —  There is no easy way out of Pennsylvania’s pension labyrinth.

The state’s two public pension systems – the State Employees Retirement System, or SERS, and the Public School Employees Retirement System, or PSERS – are a combined $41 billion in the red, thanks to years of underfunding by the state coupled with historic investment losses in the 2008 financial collapse.

And while attempts at overhauling the system can create savings down the road, that $41 billion has to be paid one way or the other.

“If everyone is looking for a way to avoid paying, that is just not going to happen,” Jeff Clay, executive director of PSERS, told members of the General Assembly.  ”It’s about figuring out how to pay it.”

Clay and other officials from the two pension systems met separately Wednesday with the House Appropriations Committee and Senate Appropriations Committee for their annual budget hearings.  The separate meetings lasted a combined five hours, as lawmakers poked and prodded over the fiscal health of the pension plans and asked about potential consequences from changes eyed by the Corbett administration.

Gov. Tom Corbett wants to reduce payments into the pension system for the next five years in order to free up dollars for other areas of the state budget. He has proposed tying that plan to long-term cost savings that would reduce future benefits for employees and would move all future hires into a 401(k)-style pension system to shift the investment risk from taxpayers to employees.

According to numbers obtained by the Associated Press, the Corbett administration plan would save $12 billion over the next 30 years by reducing benefits.

But the short-term reductions in payments are a concern, Clay said.

Under state law, annual contributions to the pension systems have been artificially suppressed to prevent a payment “spike” that was supposed to take place last year.  Now, the state is putting in about two-thirds of what is necessary to meet obligations each year.

Under Corbett’s plan, those so-called “rate collars” on annual payments by the state would be cut further.

“Purely from a pension perspective, we don’t like rate collars,” Clay said. “But we understand there is an issue of how much the state can afford to pay.”

Administration officials defend the short-term reductions in payments as being part of the long-term pension overhaul that ultimately would save money, but Democrats continued their line of attacks on the governor’s plan, picking up where Treasurer Rob McCord left off on Tuesday.

State Rep. Matt Bradford, D-Montgomery, said the proposal would be “taking a pension holiday from our pension holiday.”

“We have to get back to paying our bills,” Bradford said. “There are revenues out there.”

He suggested increasing taxes on gas drilling companies and doing away with other corporate tax reductions in order to increase revenue for the pensions.

Corbett has opposed broad-based tax increases and has a cozy relationship with business and industry in Pennsylvania, making higher taxes an unlikely pathway to funding the pension plans.

And while Republicans are generally unsure about the likelihood of passing the governor’s package of pension changes, they seem to be buying into the administration’s concept of a short-term kick of the pension can in order to achieve long-term savings by changing benefits for employees down the road.

State Sen. Jake Corman, R-Centre, chairman of the Senate Appropriations Committee, said the two parts of the plan were necessarily connected.

“If you don’t do the reforms, no, you definitely shouldn’t do the collars,” Corman said.

But that’s no easy task.  With public sector unions opposed to changing benefits, it is unlikely any Democrats will vote for those long-term benefit changes that Corbett is seeking.

That leaves the Republican majority in the House and Senate to put up all the votes on their own.  Corman said, for now, it was unclear if that would be possible.

Contact Eric Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.